The 10 Dumbest Things on Wall Street in 2012

Friday

Dec 28, 2012 at 12:01 AMDec 28, 2012 at 9:44 AM

In a year of outstanding stupidity, these take the cake.

Gregg Greenberg

NEW YORK (TheStreet) -- It's long been customary for partygoers on New Year's Eve to count down the seconds while watching the ceremonial ball drop in New York City's Times Square. Down here at the Five Dumbest Lab, we have a year-end ritual of our own: We count down the 10 biggest moments on Wall Street in which a CEO or company dropped the ball.

Before we start ticking down our favorite flubs from 2012, however, we want to wish all of our readers a happy and healthy 2013. Thanks for all your suggestions, tips and feedback. We hope to see you all in the New Year, but for your own sake, not on one of our dumbest lists.

Daily-deal site Groupon gave its shareholders a pretty raw deal in 2012. The company's stock lost two-thirds of its value and CEO Andrew Mason made frequent appearances on our weekly Dumbest list. Had Groupon investors seen this early warning from last January, they could have saved themselves a lot of headaches ... and money!

10. Groupon's Raw Deal -- published Jan. 6

Anybody looking for a deal on Groupon(:GRPN) shares could have had one this week when the stock got crushed. Then again, if this keeps up, savvy shoppers may want to wait until the savings get even bigger down the road.

Shares of the daily-deal site, which went public in November at $20, have been weak all week, closing down 5% at $17.88 on Thursday amid concern the company may not have as many offerings in the new year as merchants cut back on usage of the site.

According to a survey of 400 merchants conducted by Susquehanna Financial Group and deal-tracking site Yipit, more than half of those questioned are not planning to feature daily deals in the next six months. The poll also found that a quarter of the retailers intend to feature only one deal in the next six months.

Translation: It sure is hard being a one-trick pony when nobody wants to see your trick anymore.

On the bright side, the pollsters found that 80% of the merchants enjoy working with Groupon, LivingSocial and the other deal sites.

Translation: One-trick ponies are still cute; they're just useless.

Groupon and rival LivingSocial recently rolled out location-based instant deals that are usually run by merchants for a few hours only. Sadly, the survey by Susquehanna and Yipit found that only 10% of merchants polled have considered running these types of deals.

Maybe the real deal is that merchants are just tired of discounting their goods and they want to turn Groupon off for a while.

Those wacky Greeks brought us a boatload of gifts last year. Every time they rioted in the streets or kicked their fiscal can down the road, we got another dumb thing to write about. To which we say: Thanks, Greece! You certainly were the word.

9. Straight to Hellas -- published Jan. 20

Surely the Greek protestors were not applying the Socratic method this Tuesday when they flooded the streets of Athens just as international debt inspectors were arriving to determine if the country deserves a bailout.

You see, had the strikers employed the philosopher's decision-making rules then maybe they would have asked the right questions to arrive at a different -- and smarter -- conclusion.

Questions like: 'Hey guys, do you think we should wait until the folks with the money leave the country before we quit work to protest austerity?'

What the Hellas guys? You have got to be kidding us. Even American high schoolers are clever enough to hide the kegs when the cops show up.

Officials from the European Union, European Central Bank and International Monetary Fund traveled to Greece earlier this week to survey the impact of previous financial reforms before deciding whether to grant the country additional monetary aid.

Also on the group's agenda was a meeting with private creditors to negotiate a bond swap deal to cut Greek debt by 100 billion Euros ($127 billion).

And while one would think that this delegation would be hailed as heroes and given the run of the house, from all indications they could barely hail a cab to get to the Greek Parliament house. An estimated 10,000 protesters rallied in central Athens over potential pay cuts with strikers disrupting public transport and other services.

And while Socrates famously said "I only know that I know nothing" -- ignorance is not a viable excuse for the Greek government at this point. They know full well the importance of securing more rescue loans ahead of a 14.5 billion Euro bond repayment due in late March -- even if their countrymen would rather chug hemlock and see what happens.

It will be a long time before investors forget the craziness surrounding Facebook's IPO last May. From the underwriters overpricing the stock to the Nasdaq bungling the orders, it was a fiasco from start to finish. Nevertheless, what they may not recall about Mark Zuckerberg's coming out party was that it actually started the week before, when Wall Street analysts started setting insane price targets for the still private stock.

8. Facebook Foolishness -- published May 11

What in the name of Elvis Presley is happening on Wall Street? We thought Henry Blodget already left the building!

Facebook(:FB) isn't expected to go public until next week and already a handful of Wall Street analysts are out touting its stock. Among those jumping the gun by officially initiating coverage on the social networking giant in the past week are Michael Pachter at Wedbush Morgan and Arvind Bhatia over at Sterne Agee.

Both research pieces, to nobody's surprise, were sweet on Mark Zuckerberg's yet-to-be-hatched baby. (By the way, did you see the Facebook CEO sporting a hoodie on the company's road show? Get a suit Zuck! You can afford it.) Pachter rates the stock, which will trade under the ticker FB, at outperform with a $44 one-year price target. Bhatia, on the other hand, one-ups Pachter with a buy rating and a one-year target of $46 and a two-year target of $59.

Come on guys, we know the shares are already trading on the SecondMarket and a few other sundry places where bit-chompers swap paper, but chill out would you? Did you not see what happened when BATS Global Markets tried and failed to go public in March?

We're not saying things will go batty for Facebook as they did for BATS, but things can and do go wrong. So why tempt fate and jeopardize your reputations for the sake of grabbing a few headlines? Do you not remember what happened to Henry Blodget, Jack Grubman and the other glory-seeking analysts during the last tech bubble? Has it been that long?

If not, then maybe you should Google(:GOOG) it. (Just a hint, it didn't turn out well.)

And speaking of Google, it's worth a quick mention that the search giant -- and Facebook nemesis -- had profits of approximately $10 billion on $40 billion in sales in 2011. Facebook, on the other hand, earned around $1 billion on $3.7 billion in revenue last year.

Google, which went public in 2004, currently sports a market cap of $200 billion and has since expanded into things like Android and other people's patents. Meanwhile, Facebook, which is still figuring out its revenue model, is expected to be valued around $100 billion at the high end of its IPO range.

In other words, it took the very savvy guys at Google eight years as a public company to reach its current size, and, according to Bhatia and his buddies, Facebook will get there in about two.

Talk about putting the hoodie before the horse.

Chesapeake's Aubrey McClendon has always been one of our favorite CEOs to watch. Year in and year out, he consistently delivers the dumbness. But the wildcatter truly went wild in 2012, so much so that we could barely keep up with him.

7. Chesapeake's New Suit -- published April 27

Chill out dudes! All Chesapeake(:CHK) CEO Aubrey McClendon did was borrow a billion bucks to buy some natural gas wells without telling anybody. There's no need to make a federal case out of it.

What? Somebody already made a federal case out of it?

Wow! Even for Chesapeake that was quick!

A Chesapeake shareholder filed suit against McClendon, the board of directors and the company itself last Thursday in a U.S. District Court in Oklahoma City. The lawsuit came only a day after Reuters revealed that McClendon took out $1.1 billion in personal loans to purchase a stake in the company's natural gas wells under its Founders Well Participation Program (FWPP), a juicy perk for McLendon that the company scrapped yesterday in the wake of the controversy.

The Deborah G. Mallow IRA SEP Investment Plan is alleging that the company's board members didn't come clean about the loans until it was too late. Shares of the driller, for the record, are down 45% in the past year as natural gas prices have tumbled.

"The company's proxy statements, its annual reports on Form 10-K and other SEC filings are required to detail all related party transactions, including all material details that may affect the FWPP, and all actual and potential conflicts of interest that may arise from McClendon's participation in the FWPP," the lawsuit stated, adding that such loans "can easily cloud the CEO's judgment on key issues."

Of course, that's assuming the CEO has any judgment to cloud. For those with hazy memories, this is not the first time Aubrey has been accused by his investors of blowing smoke.

During the stock market swoon of 2008, McClendon was pressured to sell 33 million of his personal Chesapeake shares to cover margin calls. McLendon's forced selling sent Chesapeake's shares down from $67 a share in July of that year to $16 in October. All in, McLendon personally lost close to $2 billion as a result of his audacious -- not to forget senseless, reckless and downright stupid -- behavior.

Luckily, Aubrey's buddies on the board at the time bailed him out with a $75 million bonus and another $12 million for his antique map collection. All that back-scratching, however, caused Chesapeake shareholders to go apoplectic and challenge Aubrey's all-too-cozy relationship with Chesapeake's board in a court case that was only recently settled.

"We are aware of the litigation and will vigorously defend the allegations," said a Chesapeake spokesman about this latest legal spat.

Tell it to the judge buddy. It won't be the first time. And judging by Aubrey's case history, it surely won't be the last.

Wall Street's golden boy Jamie Dimon lost a bit of his luster this year as a result of JPMorgan Chase's "London Whale" losses. It was still early on when we wrote this article about Jamie's trading troubles. The red ink eventually exceeded $6 billion.

6. Dimon's Self-Inflicted Disaster -- published June 15

What a difference a year and a $2 billion (and counting) loss makes. Right Jamie Dimon?

JPMorgan Chase's(:JPM) CEO found himself before a Senate panel this Wednesday with the uncomfortable task of explaining why and how his London-based Chief Investment Office lost billions when it was supposed to be hedging run-of-the-mill risk for the bank's excess deposits.

Of course, the reason why this appearance was less pleasurable for Jamie than his previous jaunts to Washington -- the ones where he played Congress' prize pupil sitting in a pew full of naughty, bailed-out bank CEOs -- was because in this case Dimon set the witness table for himself.

In other words, Jamie's own hubris came back to bite the government's former golden boy in the ass. And sadly, that's the real dumb part of this whole affair, not so much the loss, which, although sizable by Main Street standards, is barely a blip for a company with $1.1 trillion in deposits, $700 billion in loans and $18 billion in profits last year.

It was a year ago this week, if you recall, when the follicly-blessed bank chieftain traveled to Atlanta, the home of baseball's Braves mind you, for the sole purpose of waving a hatchet at the already-scalped Fed Chairman Ben Bernanke. Why Dimon literally and figuratively went off the reservation to heckle the fairly even-minded Bernanke is beyond us. But there he was in the crowd during the Q&A session, braying about the government's stepped-up efforts to clamp down on the banking industry.

"I have this great fear that someone's going to write a book in 10 or 20 years, and the book is going to talk about all the things that we did in the middle of a crisis that actually slowed down recovery," said Dimon, who then asked Bernanke, "Is this holding us back at this point?"

Ouch. Wish you could that one back, don't you Jamie? Just like you wish you could time travel and strike April's "tempest in a teapot" line about this particular loss from the record as well. Sadly, not even your so-called "fortress balance sheet" is enough to buy you that luxury.

All that said -- and we've said a lot -- we will cut Dimon a slight bit of slack, but not for owning up to his bank's mistakes. Certainly we would not have heard a peep from Dimon if the so-called hedge had gone JP Morgan's way, so why on earth should we celebrate Dimon publicly admitting the "self-inflicted" nature of the loss. Seriously, what else is the guy to do after spending the last year taunting poor government officials over their plans like the Volcker Rule to protect bankers like Dimon from themselves?

No, the break we will grant Dimon is that his ego-inflation was not entirely his own fault. The truth is, the very folks now pillorying him deserve a lot of the blame for puffing him up.

As Dimon rightly reminded the panel during the hearing, it was the government that gifted him $25 billion in TARP funds even though his bank didn't require the cash. And speaking of gifts, it was Uncle Sam who guaranteed $29 billion in losses so he could buy a busted Bear Stearns, or what Andrew Ross Sorkin called "Jamie's deal" in his book Too Big To Fail. It was also that same Uncle Sam who blessed his deal to buy WaMu for a paltry $1.9 billion.

Put it all together and it's clear to see that JP Morgan had a great deal of assistance from Washington as it snowballed into the colossus it is today. And it was those same silly folks who gave Dimon the false confidence to think that a single man could hold it together.

Citigroup CEO Vikram Pandit was ousted in a boardroom coup this past October. Nevertheless, as distraught as we were to see Pandit pushed out, it was nothing compared to our sadness when we heard the news that Citi's former Chairman -- and Five Dumbest Hall of Famer -- Dick Parsons was stepping down.

5. Dick's Departure -- published March 9

So long Dick Parsons. Now that you are stepping down as chairman of Citigroup(:C), you will be missed.

Of course, Parsons won't be missed by Citigroup in the least after he helped reduce that once proud bank to rubble. No, his departure will be most mourned right here at the Dumbest Lab, because while he may have destroyed a ton of wealth for Citi shareholders, he's provided a treasure trove of material for us.

"Given the strong position that Citi is in today, I have concluded that the time has come for me to take my leave," said Parsons, who will be succeeded by Bank of Hawaii CEO Michael O'Neill, in a statement last Friday. Vikram Pandit, who became CEO when toe-tapping Chuck Prince was forced out in 2007, will remain in that job.

Strong position, huh? Really, Dick? Relative to what? Citigroup stock has lost approximately 75% of its value since you joined the board 16 years ago. Albeit that's better than the 84% decline that Time Warner has seen in its stock price since you helped preside over that company's disastrous merger with AOL back in January 2000, but still.

Granted, Citigroup is much stronger now than it was in October 2008 when it was forced to take $25 billion in federal bailout money because of gross mismanagement by the likes of Parsons and fellow negligent board member Bob Rubin. We'll give him that. Same goes for the additional $20 billion in taxpayer money the bank needed in January 2009, not to mention the $306 billion in assets that the government guaranteed for the so-called sake of the entire financial system. We'll give him that, too.

But seriously, how can he honestly suggest that the bank is better off for having him been at the helm? Well, supposedly at the helm. We still don't know exactly what Parsons and his buddies did at those Citi board meetings, anyway. Other than get paid, that is. Here's the real kicker when it comes to Parsons. At least Rubin had the good sense to leave in early January 2009 once he realized that his utter neglect for his duties did indeed have disastrous consequences. Parsons, on the other hand, stepped up and took the chairman's title when Win Bischoff slumped off in disgrace later that month.

Think about it. Citigroup gets saved by Uncle Sam, lays off tens of thousands of employees, and this guy pushes for a promotion!

Talk about chutzpah. That's like killing your parents and then begging the judge for mercy because you are an orphan.

Sure the government made $12 billion when it ultimately sold out of its Citi stake, but once again, relatively speaking, that's a minuscule return for the nightmare the bank put the nation through. Just because all's well now does not mean Dick's tenure ends well.

But we will miss him. That we will.

Even if nobody else does.

Best Buy was anything but for the company's shareholders in 2012 with the stock losing almost half its value. A lot of the fun started in the spring CEO Brian Dunn got caught for having too much fun with a subordinate.

4. Best Buy Strikes Out -- published May 18

It was only a month ago, as all you Dumbest fans surely remember, when the ignominious departure of Best Buy(:BBY) CEO Brian Dunn topped our list. At the time we didn't precisely know the "personal conduct" issues that led to his ousting, but we did predict that sooner or later "it will eventually hurtle down our very dumb alley."

Well, now the facts are coming out and boy did we roll a strike. And as it turns out, Dunn isn't the only pin getting toppled.

Best Buy announced Monday that its founder Richard Schulze is stepping down as chairman after an external investigation found out that he knew Dunn was inappropriately cavorting with a female employee, yet still failed to inform the firm's audit committee. Schulze, who has been a fixture at the electronics retailer since 1966, will be replaced by Hatim Tyabji, chairman of Best Buy's audit committee.

"In December, when the conduct of our then-CEO was brought to my attention, I confronted him with the allegations (which he denied), told him his conduct was totally unacceptable and contrary to Best Buy's policies and everything I, and the company, stand for," Schulze said in a statement.

Relax Richard. Now that you are resigning you don't have to stand at all. Frankly, if we were in your shoes, we would be kicking back on the beach right now as opposed to watching less-than-upright citizens like Dunn level your entire life's work.

Speaking of Dunn, he gets to keep his severance package worth about $6.6 million because, according to the report, he did not misuse company funds while he was involved with his underling.

Hey, he may have provided scads of favors to the woman, like procuring her tickets to concerts and sporting events, including one in Las Vegas where he solicited a free ticket for her. And Dunn may have been dial-happy when he used his company cellphone to call her over 200 times during two trips abroad last year.

Nevertheless, Dunn didn't jet her around on the company aircraft so he will be able to walk away with his millions, even though his stupidity caused Schulze to walk away from the company he created.

If that doesn't bowl you over, we don't know what will.

Thanks to some bad apples at Barclays, the world learned a whole bunch about Libor this year.

3. Barclays Gets Busted -- published June 29

A bunch of thieving traders were manipulating the most important benchmark lending rate in the world during the height of the financial crisis. Now they are paying up for their sins -- and their egregious stupidity.

Well, at least their employers are paying up. Those guys cashed out years ago.

Barclays(:BCS) agreed Wednesday to pay $453 million in a joint agreement with regulators in the United States and Europe to settle a probe that it profited or curbed losses on trades related to Libor - aka the London Interbank Offered Rate -- which impacts borrowing costs for everyone from homeowners to central bankers from 2005 to 2009.

According to the U.S. Commodity Futures Trading Commission , Barclays traders, under the approving eye of the bank's senior management, made artificially low Libor submissions while simultaneously colluding with their equally devious counterparts at other banks.

For example, here is a March 2007 instant message exchange between a pair of traders from separate banks: "this is the way you pull off deals like this chicken, don't talk about it too much, 2 months of preparation ... the trick is you must not do this alone ... this is between you and me but really don't tell ANYBODY."

No, you turkey, the trick is not to get caught and leave a trail of evidence that you are rigging bids.

And here is another choice nugget from March 2006 illustrating the conspiracy theses dunces engaged in: "Dude. I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger."

Hey, there may be no honor among crooks, but at least there is champagne.

As for the guy at the top of Barclays pyramid, well, CEO Bob Diamond said what he was expected to say, apologizing that "some people acted in a manner not consistent with our culture and values." As penance, Diamond, Finance Director Chris Lucas, Chief Operating Officer Jerry del Missier and investment banking boss Rich Ricci agreed to forgo bonuses this year.

Sorry, Bob, but it was more than "some" bad apples spoiling the bunch. This was a wide-ranging scheme that will surely grow even wider as more big-name banks settle with the Department of Justice in order to put the whole sordid affair behind them. Heads should definitely roll over this, not just bow in regret over getting busted.

And as for your bonus sacrifice, give us a break. We are quite sure you can skate by on your current $6 million base salary and the $23.5 million in compensation you pocketed last year.

Of course, the same probably can't be said for all the struggling homeowners now shelling out higher than necessary mortgage payments each month because of your bank's bad behavior. Nope, those folks aren't skating by at all. Thanks to you and your friends, they are stuck.

We have no idea when JC Penney CEO Ron Johnson will complete his retail experiment. It may or may not be in the coming year. All we can say is that he did a supremely dumb job dismantling the iconic department store in 2012.

2. Penney's Apoplexy -- published Nov. 16

Congratulations JC Penney(:JCP) CEO Ron Johnson. You win. We here at the Five Dumbest Lab tried as best as we could to keep up with your maniacal pricing maneuvers and ever-shifting sales strategies, but you simply proved too much for us to handle.

Like your stock, which sank to 52-week low of $17 this week, we bow down to you.

So what finally made us submit? Why throw in the towel now after weathering all these weeks and months of Ron's recklessness?

Believe it or not, it wasn't the humbled retailer's rotten third-quarter earnings report last Friday. The Plano, Texas-based company said it lost 56 cents per share, or $123 million, in the quarter, compared with a loss of $143 million, or 67 cents per share last year. Revenue dropped 27% year-over-year to $2.93 billion. Wall Street was looking for a loss of 15 cents a share on revenue of $3.27 billion.

Yes, it was an absolutely ugly report, yet that wasn't the straw which broke our back. Nor for that matter was it the downgrades that arrived fast and furiously on Monday.

Credit Suisse analyst Michael Exstein, for example, questioned Penney's long-term viability, writing: "JCP must find a way to significantly slow the sales decline within the next six months, and if it doesn't, management's attempt to 'bet the company' could become more problematic."

Standard & Poor's, for its part, chopped the company's credit rating to B- from B+, saying: "The downgrade reflects recent performance that has remained poor and our view that it will continue to be weak over the next 12 months."

Nope, that wasn't it either. We're used to Penney's getting downgraded by now; although the existential aspect certainly did raise our eyebrows considering the iconic nature of the 110-year old company.

No, what really made us give up the ghost was Ron "No More Sales" Johnson's announcement Monday that JC Penney will host "its only sale of the year" on Black Friday.

"All day long, customers will find some of our lowest prices ever and the chance to win amazing gifts, including once in a lifetime trips to great American destinations," said Johnson. "It's our way of kicking off the holiday season and saying, 'Merry Christmas, America!'"

Lowest prices ever? Only sale of the year? Are you out of your mind Ron?

What about the coupons you gave out last month? What about the "Month-Long Values"? What about the "12 promotional events each year"? What about the "Everyday" low prices? What about the "Best Price Fridays"? What about the end of "retail gimmicks"? What about the free haircuts?

Aaaahhh!!! Enough Ron! Just stop it. We can't take it anymore.

You promised us a "fair and square" pricing strategy and a break from all those ridiculous retail tricks of the past.

Sadly, you broke our brains and a once-proud retail chain instead.

Seriously, Hewlett Packard, what would we have done without you this year? Whenever things were going swimmingly on Wall Street and we had nothing dumb to write about, you never failed to do something historically inept and save our skin. And for this we will be forever in your debt.

1. HP Charges Ahead -- published Aug. 10

Hewlett-Packard(:HPQ) is once again leading the charge in Silicon Valley.

Charge-offs, that is.

The once-proud printer company announced Wednesday its plan to take a colossal $8 billion charge against its earnings when it reports third-quarter results Aug. 22, leading to a record loss of nearly $9 billion. The charge is due to a writedown of the value of its service business, definitively proving that the company overpaid when it picked up Electronic Data Systems in 2008 for $14 billion. HP has only posted one quarterly loss in the past 15 years for those keeping score.

And for those more comfortable speaking in acronyms: EDS is no IBM so Q3 at HP is DOA.

Sorry about that. Sometimes all this dumbness just gets us giddy.

Anyway, Hewlett-Packard picked up EDS in order to transform itself from a printer maker into an information-technology company, just like IBM did so successfully. Too bad it couldn't make the change, as the division has seen flat revenue and declining profits for the past two years.

Nor could it make the change to a PC or mobile-device company. Last quarter HP announced it was writing off $1.2 billion from the value of the Compaq brand name. HP purchased Compaq in 2002 for $25 billion. And, as for that $1.2 billion Palm purchase in 2010, well, we haven't gone through all the footnotes yet, but it's safe to say HP's accountants probably palmed that one off somewhere along the line. And if they haven't, then stay tuned.

Yep, it sure is sad when goodwill goes bad. And it's even sadder when an American corporate icon like HP undergoes a massively expensive -- and very public -- identity crisis. Shares of the company have lost a quarter of their value this year and almost 15% since Meg Whitman took the CEO reins from Leo Apotheker last September.

Which brings us to the British company Autonomy, which Apotheker acquired for $10.6 billion in cash with the goal of turning HP into a software giant. In May, Whitman told analysts on HP's quarterly earnings call that she was still optimistic about Autonomy's future despite its "significant decline" in annual revenue.

Hopefully we will hear better things about Autonomy from Whitman when HP reports later this month. But even if they can't turn things around, it's no biggie. If they can't make a change, they can always take a charge.